For the majority of last year, Alphaeon Corp. was the initial public offering that never happened.
The Irvine-based company, which started in 2013 primarily as a “lifestyle medicine” company that provided products and services not covered by health insurance, entered 2016 as the hyped-up, darling IPO candidate of Orange County.
It was well-funded by physicians, and it acquired across all private-pay industries, including plastic surgery, ophthalmology and dermatology. Its board of directors was comprised of prominent healthcare and business leaders, and analysts and industry executives lauded its business model.
But it didn’t go public. Some people familiar with the business model told the Business Journal that the company expanded too quickly, and some said it spent injudiciously. But Chief Executive Murthy Simhambhatla said the company, like most startups, started with a broad strategy and has had to narrow its focus. That focus is now a Botulinum toxin type A neurotoxin developed by Daewoong Pharmaceutical Co. Ltd. in Seoul, South Korea. The neurotoxin is similar to Botox, the popular drug of Allergan PLC that’s used in facial aesthetics, among other applications.
“You should think of Alphaeon now as a neurotoxin company,” said Simhambhatla, who replaced Alphaeon co-founder and former Chief Executive Robert Grant last summer. Simhambhatla was previously a senior partner of Newport Beach-based Alphaeon investor Strathspey Crown LLC and before that president of Abbott Laboratories and of its medical optics unit in Santa Ana that’s now part of J&J Vision.
This month, Alphaeon’s wholly-owned subsidiary, Evolus Inc., submitted the neurotoxin to the Food and Drug Administration, seeking approval for the treatment of frown lines between the eyebrows.
“[We plan to] get product approval next year, launch commercially and then build a beauty franchise around it,” Simhambhatla said.
Private-pay healthcare-focused investment firm Strathspey acquired Evolus in Santa Barbara in 2013 and incorporated it into its wholly-owned subsidiary, Alphaeon.
Alphaeon holds an exclusive license to market the neurotoxin in the U.S. and in international markets, such as Canada, Europe, South Africa, Australia and Russia. Daewoong, which manufactures the neurotoxin, retains control of the Asia market.
Reshuffle
Alphaeon, in addition to chopping away superfluous products, has also brought on new investors and reshuffled its board of directors as members stepped down over the past nine months, including veteran investor Bill Link, co-founder and a managing director of healthcare investment firm Versant Ventures in Menlo Park; stem cell pioneer and AiVita Biomedical Chief Executive Hans Keirstead; and Christopher Cox, a former Securities and Exchange Commission chairman. The current board is down from 13 to nine.
Alphaeon, which started with physician investors, brought in venture capital dollars in 2015, completing a private placement of series B preferred stock in a transaction led by private equity firm Sailing Capital in Hong Kong. Other participants included H&S Ventures LLC in Corona del Mar, Longitude Capital Management Co. LLC in Menlo Park and Chow Tai Fook Enterprises Ltd. in Hong Kong.
Its most recent fundraising brought in new investor Dental Innovations Bvba in Antwerp, Belgium, which alongside Sailing Capital, Longitude Capital and other current investors, completed a private placement of secured convertible notes in early May.
“The way to think about it is that we now have a diverse investor base: a large family office, physicians, venture investors and Strathspey as the majority shareholder,” Simhambhatla said. He noted that the financing will be enough to get the company through the FDA approval process and that he doesn’t anticipate returning to Strathspey for more funding.
Other Offerings
The company has held on to most of its earlier acquisitions, including technology startup Eveo in San Francisco, which helped build its social commerce platform, ShoutMD, where doctors can review and rate products they use in their practices. Simhambhatla said there was no wrong deal, “just a matter of timing.”
Its offerings also include a credit platform that provides financing services.
Simhambhatla said he remains confident in the company’s model and is focused on growing its core business—the neurotoxin and a “broader aesthetic product line” in the future—as well as cash flow.
“It took us approximately 12 months [to restructure], but we survived, and we’ve crawled out of that hole, and we are much stronger,” he said.
Alphaeon is in the process of vacating its space at its headquarters at 18191 Von Karman Ave. Simhambhatla said the majority of the company’s current operations will be in Santa Barbara, where Evolus is based, though it will maintain headquarters in Orange County. A source familiar with the move said Alphaeon will move to Oracle Tower at 17901 Von Karman Ave., a few blocks away from its current location.
The company signed its initial lease in 2014 with the owner of the Lakeshore Towers office complex, taking two floors of the five-story office totaling nearly 53,000 square feet, according to brokerage data. More than $4.5 million has been invested in space improvements. The space was being marketed by brokers with the Irvine office of Hughes Marino earlier this year.
